The operating loss in the power segment in 2Q2012 amounted to $56.2 million, or -19.5% of the total segment's revenue in the same period compared to the operating income of $24.9 million, or 6.6% of the total segment's revenue, in 1Q2012. The adjusted EBITDA in the power segment in 2Q2012 decreased by 99.0% totaling $0.3 million, compared to the adjusted EBITDA of $27.5 million in 1Q2012. The adjusted EBITDA margin for the power segment in 2Q2012 amounted to 0.1% compared to 7.3% in 1Q2012. Depreciation and amortization in power segment in 2Q2012 decreased by 12.2% comparing with the 1Q2012 from $4.1 million to $3.6 million.

Mechel-Energo OOO's Chief Executive Officer Yuri Yampolsky noted: "Quite expectedly, the 2Q 2012 results appeared to be slightly weaker quarter-on-quarter due to the seasonal decline in demand. What is worth mentioning, however, is that in spite of the low demand, the segment's operational performance is currently better than the relevant targets. Also, periods of low capacity utilization are traditionally used to complete repair and maintenance arrangements and get ready for the heating season in autumn and winter."

Recent Highlights
  • In August 2012, Mechel announced a dividend payment (including taxes) of 7,694,945,433.30 rubles (approximately US $241.2 million), based on the Company's results for the 2011 fiscal year.  
  • In September 2012, Mechel announced the signing of a cooperation agreement for supplying OJSC "RAO Energy Systems of East" with coal from Elga Coal Complex. The agreement sets forth the key principles of the two sides' long-term cooperation regarding the use of coal from the Elga deposit. Once probes of Elga's coals are delivered to OJSC "RAO Energy Systems of East" subsidiary JSC "DTE" and in case test burning yields positive results, Mechel Mining may gradually increase supplies of the Elga deposit's coals up to a total of 60 million tonnes over 15 years.  
  • In September 2012, Mechel announced that coal mining at Southern Kuzbass Coal Company OAO's New-Olzherassk Underground has been resumed.  
  • In September 2012, Mechel reported decisions made by the Board of Directors. Based on the results of an analysis of Mechel OAO's assets presented by the management, the Board of Directors unanimously approved divestment of the following assets as not consistent with the new development strategy: enterprises that make up Mechel's Eastern European Steel Division S.R.L., Donetsk Electrometallurgical Plant PJSC (Ukraine), Invicta Merchant Bar Ltd. (UK), UAB "Mechel Nemunas" (Lithuania), Mechel Service Global B.V. (except Mechel Service OOO (Russia)), Voskhod-Chrome LLP (Kazakhstan), Voskhod-Oriel LLP (Kazakhstan), Tikhvin Ferroalloy Plant OOO (Russia), Southern Urals Nickel Plant OAO (Russia), Kuzbass Power Sales Company OAO (Russia), Toplofikatsia Rousse EAD (Bulgaria). In order to speed up implementation of the mining division's priority project — development of the Elga coal deposit — the Board of Directors also recommended evaluating the possibility of a potential divestment of a minority stake in Mechel Mining OAO to a strategic partner (but such stake not to exceed 25%).  
  • In October 2012, Mechel announced the commissioning of a seasonal washing plant and production of the first volumes of concentrate of coking coal mined at the Elga deposit.

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 1H 2012 amounted to $577.7 million, of which $335.6 million was invested in the mining segment, $208.3 million was invested in the steel segment, $28.0 million was invested in the ferroalloy segment and $5.8 million was invested in the power segment.

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